topic 12 - health & general insurance

Question 1

Critical illness cover

Answer 1

• Provides a tax-free lump sum to meet the additional costs that someone may face if they find themselves in this situation
• The illness does not need to be terminal

Question 2

Income protection insurance

Answer 2

Pays an income when accident or illness prevents someone from earning a living by carrying out their normal occupation

Question 3

Accident, sickness and unemployment insurance

Answer 3

• Typically used to cover mortgage repayments if illness, accident or loss of employment prevents policyholder from earning a living
• Should be viewed as a short-term plan to protect mortgage repayments rather than providing total protection of earned income
• Renewable annually at the discretion of the insurer

Question 4

Private medical insurance

Answer 4

• Pure protection plan to provide cover for the cost of private medical treatment. Eliminating the need to be totally dependent on the NHS
• Can be arranged on an individual basis or part of a group scheme established by an employer

Question 5

Long-term care insurance

Answer 5

• Provide funds to meet care costs later in life.
• May not need to be in a nursing home to receive LTC benefits
• If an annuity is purchased for immediate long-term care needs benefits will be tax free if paid direct to the care provider

Question 6

Indemnity

Answer 6

general insurance companies are contracts of indemnity. In the event of a claim, insured persons should be restored to the same financial position after a loss

Question 7

Pecuniary loss

Answer 7

loss resulting from a defaulting creditor

Question 8

Insurance premium tax (IPT)

Answer 8

the standard rate of IPT is charged at a % of the premium on most general insurance that relate to risk for which the period of cover begins on or after that date. Travel insurance premiums taxed at a higher rate

Question 9

Payment protection insurance (PPI)

Answer 9

• Can cover monthly loan repayments if the policyholders earning stop due to accident, sickness or unemployment
• Linked to a specific lending product and may be offered at the same time as the loan
• Pay outs typically limited to 12 months